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An annual quasidifference approach to water price elasticity
Author(s) -
Bell David R.,
Griffin Ronald C.
Publication year - 2008
Publication title -
water resources research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.863
H-Index - 217
eISSN - 1944-7973
pISSN - 0043-1397
DOI - 10.1029/2007wr006233
Subject(s) - econometrics , price elasticity of demand , economics , price index , elasticity (physics) , consistency (knowledge bases) , price level , index (typography) , climate change , price elasticity of supply , marginal utility , marginal cost , statistics , mathematics , microeconomics , computer science , macroeconomics , ecology , materials science , geometry , biology , world wide web , composite material
The preferred price specification for retail water demand estimation has not been fully settled by prior literature. Empirical consistency of price indices is necessary to enable testing of competing specifications. Available methods of unbiasing the price index are summarized here. Using original rate information from several hundred Texas utilities, new indices of marginal and average price change are constructed. Marginal water price change is shown to explain consumption variation better than average water price change, based on standard information criteria. Annual change in quantity consumed per month is estimated with differences in climate variables and the new quasidifference marginal price index. As expected, the annual price elasticity of demand is found to vary with daily high and low temperatures and the frequency of precipitation.